Skip to content
  1. Home
  2. The Mortgage Brokers Blog
  3. Q&A; What is a Higher Lending Charge?
Print this page

Q&A; What is a Higher Lending Charge?

Author: Andy Bedford » Publish Date: 19 February 2010

Question; What is a higher lending charge, and how does it affect me as a borrower?

A higher lending charge is a fee lenders may apply to loans over a certain percentage of a property’s value (or loan-to-value).

For example, a lender may impose an extra charge on borrowers who borrow more than 80% of a property’s value, or perhaps more than 85% etc.

Often the fee will be a percentage of the amount of borrowing that exceeds this threshold.

A typical example would be a 5% charge on all lending over 80% of the property value. In this case, if your home was worth £100,000 and you borrowed £90,000, you would pay 5% of the £10,000 over and above the 80% limit, giving a higher lending charge of £500.

It’s important to consider how the fee is calculated, for each lender. It could be based on the whole loan, meaning the fee could be considerably higher than the example above.

Another important consideration is what the lender does with the fee.

Some lenders charge a fee to increase their profit margin on these loans to cover potential losses if they have to sell properties below market value at auction.

If the lender uses the fee to buy insurance, though, often referred to as a ‘Mortgage Indemnity Guarantee’ (which insures the lender against such losses), in the event of you handing back the keys and the property selling at a loss, the insurer would then have the right to pursue you for their losses under the ‘right of subrogation’.

The FSA forced lenders to stop referring to these charges as ‘Mortgage Indemnity Guarantee’ fees because it was worried that this gave the impression that such insurance policies would benefit the borrower, as well as the lender; so be aware that if you pay this fee or have done in the past, it will not protect you from the lender or insurer pursuing you for any outstanding balances should the property have to be sold at undervalue after repossession.

Categories
Next posts

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. PLEASE NOTE THAT SOME MORTGAGES SUCH AS COMMERCIAL BUY-TO-LET ARE NOT REGULATED BY THE FCA.

RIGHTMORTGAGEADVICE.CO.UK FCA NO. 500795 IS AN APPOINTED REPRESENTATIVE OF JULIAN HARRIS MORTGAGES LTD FCA NO. 304155, WHICH IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

THE FINANCIAL OMBUDSMAN SERVICE (FOS) IS AN AGENCY FOR ARBITRATING ON UNRESOLVED COMPLAINTS BETWEEN REGULATED FIRMS AND THEIR CLIENTS. FULL DETAILS OF THE FOS CAN BE FOUND ON ITS WEBSITE AT WWW.FINANCIAL-OMBUDSMAN.ORG.UK.

THE GUIDANCE AND/OR ADVICE CONTAINED WITHIN THIS WEBSITE IS SUBJECT TO THE UK REGULATORY REGIME, AND IS THEREFORE TARGETED AT CONSUMERS BASED IN THE UK.

© RIGHTMORTGAGEADVICE.CO.UK 2010-2024.

Get advice
Request mortgage advice
close the form
Mortgage enquiry details
Your details
Contact details
Enquiry details
Legal Consent